MADISON – The Public Service Commission on Friday reprimanded the Wisconsin Rapids Water Works and Lighting Commission for spending $1.262 million to upgrade a treatment plant without prior approval.

Whether the PSC will allow the water utility to recover the costs of the project in its pending rate case have yet to be determined.

The rate request seeks a 13.7 percent increase in revenue.

According to the PSC order:

The project begun in 2014 changed the iron removal process that previously had been corrosive to treatment controls and equipment and produced a significant amount of sewage. The upgrades reduced sewage waste produced during the treatment process and is saving the utility about $221,785 per year.

However, utilities are required to submit construction plans to the PSC for prior approval when the cost exceeds 25 percent of the previous year’s annual net income. This project’s cost exceeded that threshold by $364,000, according to the order.

Utilities that don’t obtain prior approval for construction projects can be reprimand by the PSC, prohibit recovery of the project’s cost in the next rate case or refer the matter for the attorney general for prosecution.

The utility hired SEH Inc. as project manager and expected the firm to apply for all necessary approvals. The Department of Natural Resources approved the project in 2013, but an application was not submitted to the PSC. The PSC noted that since 2014, SEH has submitted 15 construction applications to the agency.

The PSC expects utilities to know and follow the law and directed its staff “to specifically address the recovery of costs associated with the upgrades to the iron treatment system in (the) pending rate case,” according to Friday’s order.

The utility will have to show reasons why they should be allowed to recover the unauthorized costs, PSC spokesman Matthew Spencer wrote in response to a reporter’s seeking clarification of the statements.

PSC staff found that the utility did not intentionally violate the law and the project was necessary to “ensure adequate and reliable service for present and future water demands of the (u)tility’s customers,” according to a PSC staff memo.

In two similar cases this year, the PSC issued reprimands and did not exclude the cost of the projects from the rate cases, according to the memo.

If the utility can’t recover the cost of the project in its rate case, it would result in slightly lower rates to customers and less net income to the utility, Spencer has said.

Jem Brown, general manager of Wisconsin Rapids Water & Light Commission, was not immediately available for comment on the reprimand or the utility’s chances of recovering the project’s cost in the current rate case.